New Opt-In Employer Tax Coming To New York

This might be the first time you are happy about a new tax! This one is the Employer Compensation Expense Tax (ECET), an optional tax that New York employers can pay on employee income earned in excess of $40,000 a calendar year. Interested employers have until December 1, 2018, to opt-in for 2019.

The payroll tax, part of the Employer Compensation Expense Program (ECEP), was created to reduce the impact of the $10,000 cap on itemized deductions for state and local taxes imposed by the 2017 federal Tax Cuts and Jobs Act. The employers pay the tax for the employees, and the employees, in turn, receive a tax credit against their NY State income tax liability.

Whereas the deductions cap theoretically increased the amount of income tax a worker would have to pay, the ECET can keep more money in their pockets. An employer could choose to opt-in to the tax in lieu of a raise for the employee, rendering the employee’s net gain for the year higher.

It’s important to note that this is not a tax that is withheld from an employee’s paycheck, but rather one that the employer pays on the same dates as they do their withholding tax payments. Participating employers do not have to change their withholding tables, but their employees will get updated 2019 IT – 2104 forms so they can adjust their income tax withholding.

The tax rate on the payments will be phased in over the next three years as follows: 1.5% in 2019, 3% in 2020, and 5% in 2021.

Since this is such a new tax, experts point out that there are still a number of “unknowns” concerning it. For example, technically employers can deduct the ECET for federal income tax purposes…but would the IRS challenge such a deduction in a return?

That’s why it’s very important to consult your accountant if you have any questions about the ECET. Updated information on the tax will no doubt be available in the coming months, and such financial experts will be the first to receive it.

An easy way to prepare your payroll and stay in the loop on the latest tax changes is to have an all-in-one HR software company like Fingercheck do it for you.